Gas Grows Up

Part 1: Developing New

Sources of LNG Demand
Contents

Executive Summary 3
Increasing competitiveness in a buyers’ market 4
Facing facts: LNG demand in the
largest markets is uncertain 6
Japan 7
South Korea 11
China 14
India's demand forecasts are optimistic 18
LNG: More markets, more customers 21
A new perspective on demand in 2030 26
Implications for LNG producers and marketers 27
References 30
Glossary 31

2
Executive Summary

Wind the clock back five years and leading industry commentators were hailing the golden age of gas.
The IEA’s 2011 World Energy Outlook introduced “the Gas scenario”, foreseeing more than 50 per cent
growth in demand by 2035. Estimates from the World Energy Council and International Gas Union
indicated that the natural gas share of primary energy supply would grow to ~25 per cent in 2030.1

However, as illustrated in Figure 1,
natural gas supply growth is not located
in the highest demand areas. Up to now,
a common view was that growth in
Liquified Natural Gas (LNG) trade flows
would be primarily driven by Asia. This
expectation led producers in Australia,
the Middle East, Africa, and North
America to make large investments to
bring their LNG supplies to Asia.
In Australia alone more than $250 billion
has been invested since 2009 in what
will soon be the world’s largest, most
modern and technologically advanced LNG
industry.2 Just as many operators around
the world are beginning to transition their
newly built, state-of-the-art assets into
the operations phase, it seems the future
may not be as bright as first anticipated.
Today, demand in the largest markets for
LNG is uncertain just as new independent
US exporters such as Cheniere Energy
are appearing and many long-term gas
contracts in Asia are expiring. With access
to flexible U.S. shale gas supply (compared
to the long position of vertically integrated
gas producers), these new players will
disrupt the global trading of LNG.
Accenture’s Energy industry group is
conducting research into the drivers
reshaping the LNG market and the
implications as it enters a new stage of
maturity. This paper, the first in a series
entitled Gas Grows Up, examines the
increasing uncertainty of LNG demand in
some of LNG’s traditional markets as well
as the opportunity in new geographies.
It outlines the implications for producers
and marketers of LNG and sets out the
critical actions needed to increase their
competitiveness in today’s volatile markets.

Figure 1: Global Supply and Demand for Natural Gas 2014-2040

1250 25%
17%
18%
1000 96%

37% 10%
750 52%
44%
25%

500
71%
50% 41%
250 75%
95%

0
-11% -13%
North Latin Russia and Non-OECD
-250 America America Europe Middle East Africa Eastern Europe Asia OECD Asia

Volume 2014 (bcm) Supply Demand Volume 2014 – 2040 Growth (bcm) Supply Demand % Change 2014 - 2040

Source: IEA Natural Gas Medium Term Report 2015, IEA World Energy Outlook 2014, New Policies Scenario

3
Increasing competitiveness
in a buyers’ market
The future for LNG at least for the next 5-10 years, looks set to be a buyers’ market, with spot
LNG prices, particularly in Asia, lower than over the past few years. Demand for LNG will look very
different, with more countries and customers consuming LNG rather than the domination of several
very large demand countries and customers we see today. As supply exceeds demand, there could be
an exponential increase in the number of customers as suppliers look for new markets beyond the
traditional countries and large utilities.

Today, three countries, China, Korea
and Japan, make up approximately 60
per cent of global LNG imports.3 For
different reasons, LNG demand in all three
countries could be less than expected. In
Japan, government policies are targeting
energy efficiency and the restarting of
nuclear power plants after the Fukushima
plant was destroyed by a tsunami in
2011. Recent announcements by Japan’s
Ministry of Economy, Trade and Industry
(METI) indicate that Japanese natural
gas consumption could settle at 84 bcm
by 2030. This is almost 32 per cent less
than the LNG imported in 2014 (123
bcm). (Note: Both Japan and South Korea
import virtually all of their natural gas in
the form of LNG, so natural gas estimates
in both countries can be used as proxy
for LNG demand.) In South Korea, the
decline in natural gas demand is related
to the relative cost of LNG compared with
higher efficiency, lower cost coal, nuclear,
and renewable energy. For example, in
2015 the use of natural gas for power
generation continued to decline in South
Korea due to increasing use of nuclear,
coal and renewables. By the end of
2015, South Korea's total LNG demand is
expected to show a continued decline in
natural gas consumption. In China, LNG
imports could decline in favor of domestic
conventional and unconventional natural
gas production, imports of pipeline gas
(105 bcm of imported pipeline capacity
is scheduled to be online by 2018), and
increased use of fuel oil.
India is currently the fourth-largest
importer of LNG globally. It imported 20
bcm (15 mt) in 2014, but the government
forecasts demand will almost triple to
~52 bcm by 2020.4 However, natural
gas use has been declining over the
last four years due to the country’s
inability to expand its domestic natural
gas production, lack of midstream
infrastructure, and the cost of natural gas
relative to other primary energy sources.
India has almost 60 MMTPA capacity of
LNG regasification and floating storage
projects (FSRUs) planned for 2018-2020
and three to four pipeline import projects
planned. In total, the capacity of these
projects could be nearly five times India’s
total LNG imports in 2014. However, it is
unlikely that all of these projects will go
ahead and total LNG demand is likely to
be lower than current forecasts.
More than 30 countries now have
infrastructure to import LNG, with new
countries such as Lithuania, Jordan, Egypt
and Pakistan added in 2014 and 2015.5 As
demand falls in Japan, South Korea and
China, the customer base elsewhere may
grow beyond the traditional large utilities,
even in existing LNG import markets. This
new demand is already evident as some
utilities that over-contracted sell their
excess supply. South Korea’s Kogas has
sold on some of its committed US LNG
capacity to Total and China’s Sinopec is
also looking to sell some of its contracted
LNG capacity and may set up a trading
desk in Singapore.6
Producers and marketers need to act now
to increase their competitiveness in a
market where supply will exceed demand,
where markets are more global (we are
already seeing the influence of Henry
Hub contract structures and pricing)
and where customers are geographically
diverse and numerous. They will succeed
if they can bring LNG to the market in
a cost-competitive way, optimize their
contract and asset portfolios, encourage
new applications for natural gas, and are
agile enough to take advantage of the
next opportunities.

4
There are six core implications for
producers and marketers of LNG:
1. P rotect market share in Japan,
South Korea, China and India
2. Diversify to other markets and
smaller customers
3. Prepare for a very different
competitive landscape with
non-traditional players exporting
and trading U.S. LNG
4. B
 uild flexibility in contract
portfolios through trading
and midstream
5. Invest in science, technology,
and engineering for small scale
LNG and new applications
6. Drive down the costs of
delivered LNG
It looks like the global gas market
is here, accelerated by unexpected
circumstances, U.S. LNG supply, resulting
in a market where supply will exceed
demand for the near future; historical
barriers to entry (i.e., access to supply
and infrastructure) are removed, and
the entry of non-traditional players and
traders is much easier. Producers and
marketers who embrace the six core
implications will have a stronger chance
of survival in this competitive new age
of uncertainty. This report, the first
in our Gas Grows Up series, examines
the uncertainty of LNG demand of the
largest LNG importing countries and the
opportunity and challenges that come
with new customers in new geographies
who are smaller and more diverse.
5
Facing facts: LNG demand
in the Largest Markets is Uncertain
Three countries (China, South Korea and Japan) made up approximately 60 per cent of global LNG
imports in 2014, but these markets could account for much less than 60 per cent in the future.
The use of LNG for power generation is challenged with coal proving resilient, more nuclear, the
costs of renewables falling, and planned pipeline gas imports into China.7

LNG makes up about 10 per cent of the
current total natural gas market demand,
with about 241 mt (332 bcm).8 China,
South Korea and Japan approximately
60 per cent of global LNG imports in
2014.9 Forecasts from the oil and gas
companies BG Group and BP indicate
that the LNG market will grow to
~500 mt (~680 bcm) by 2030 and will
represent 16 per cent of the global
natural gas market demand by 2030.
Accenture’s analysis of the future LNG
demand in Japan, South Korea and
China indicates that these markets
could account for much less than 60
per cent of LNG demand in the future.
The use of LNG for power generation,
in particular, is challenged with coal
proving resilient and super critical higher
efficiency plants under construction.
Nuclear power generation is starting
to increase, the costs of renewables is
falling, and China is also planning pipeline
gas imports. For example, China has some
of the most efficient coal plants in the
world, reaching 45 per cent efficiency
compared to the global average efficiency
of 33 per cent. Both Japan and South
Korea also have new higher efficiency
coal plants under construction.10

Figure 2: Global LNG Demand: Largest Importers (and Other) 2014

and 2030 Global Estimates (mt)

2014 20 89 38 99 241

2030 LNG Market

~500
Forecasts

China Japan South Korea Others

Source: IGU 2015 LNG Report, BP Outlook to 2035, BP Statistical Review 2015 (Japan, China), Monthly Energy
Statistics in Korea 2014 2014.1 ~2014.12 (South Korea), India Energy Statistics 2014

6
Japan

Recent announcements by the Japanese Ministry

of Economics, Trade and Industry (METI) indicate
that Japanese natural gas consumption will
continue to decline past 2020 and settle at 84
bcm by 2030. This is 32 per cent less than the
123 bcm of LNG imported by Japan in 2014.11

7
The IEA estimated in its 2014 World
Energy Outlook that under its Current
Policies Scenario, natural gas demand
in Japan would decline to 90 bcm by
2020 from 127 bcm in 2012 and rebound
slightly to 106 bcm by 2030.12 In its New
Policies Scenario, the IEA estimated
natural gas demand would be 90 bcm in
2020, reaching 92 bcm in 2030.
However, recent announcements by the
Japanese Ministry of Economy, Trade
and Industry (METI) indicate that the
country’s natural gas consumption will
continue to decline past 2020 and settle
at 84 bcm by 2030 (~10 per cent below
the IEA New Policies Scenario), unless
there is a breakthrough in transportation
or other potential new demand sources.13
This is 32 per cent less than the 123 bcm
(89 mt)14 of LNG imported in 2014 and
largely the result of continued increases
in energy efficiency and the restarting
of its nuclear power stations.
The Institute of Energy Economics in
Japan (IEEJ) published its primary energy
and electricity mix supply structure in
July 2015. In analysis of the primary energy
supply/demand structure in 2030, energy
conservation reduces demand to below
2013 levels and self-sufficiency of energy
supply through nuclear and renewables
increases to 24 per cent from six per cent
in 2013. The share of natural gas in the
primary energy mix falls to 18 per cent.15
In the electricity sector, energy
conservation significantly mitigates
growth. The share of natural gas in power
generation falls to 27 per cent as the share
of renewables increases to 24 per cent.
If these estimates are realized, demand
for natural gas would be similar in the
make-up of Japan’s primary energy mix
as before the Fukushima accident.16
The restarting of nuclear power generation
may affect LNG exports as early as 2016.
The IEEJ developed a number of scenarios
on the impact of the restarts. In the
IEEJ’s Reference Scenario, LNG imports
in 2016 are estimated to fall to 83 mt
(113 bcm) after the first commercial
operation resumed in 2015 and three
to five plants were scheduled to restart
every six months from then. In the
scenario where with the most (24) plants
under assessment coming on stream and
generating electricity with a capacity
factor of 80 per cent, LNG imports to Japan
in 2016 could fall to 76 mt (103 bcm).17

Figure 3: Energy supply/demand structure in 2030-Primary energy

• While energy demand growth is projected in line with economic growth (an average
1.7 per cent) energy efficiency is expected to improve though energy conservation
(35 per cent in 20 years)

• Energy supply/demand structure improvement (energy self-efficiency rate:

6 per cent in 2014-24.3 per cent in 2030)

• Energy-related CO2 emissions: down 21.9 per cent from 2013

Energy demand Primary energy supply

Through energy About 489 million kl

conservation about Renewable energy
50.3 million kl about 13-14%
Economic (Down 12% from a case
Growth Nuclear
361 million kl without measures) about 10-11%
1.7% year
Natural gas
Electricity about18%
25%
Electricity about
Final energy 28% Coal
consumption
about 25%
about 326
million kl
Heat, Gasoline, Heat, Gasoline,
City gas, etc,. City gas, etc,.
75% Oil
about
about 32%
72%

FY2013 FY2030 FY2030

(Actual) (after energy
conservation measures)

Source: METI “Long-term Energy Supply/Demand Outlook” (July 16, 2015)

http://www.meti.go.jp/english/press/2015/pdf/0716_01a.pdf

8
Figure 4: Energy supply/demand structure in 2030 – Electricity mix

• Through energy conservation (electricity savings) and the maximum renewable energy diffusion will cover about 40 per cent
of electricity demand, reducing the dependence on nuclear power generation substantially (from 29 per cent before the 3/11
disaster to 20-22 per cent)

• Base load share: 56 per cent (63 per cent before the 3/11 disaster)

• Electricity costs to decline by 2-5 per cent from the present level

Electricity demand Electricity mix

Energy conservation
and renewable
energy covering
Through energy about 40%
conservation about
(Total electricity output) Geothermal
196.1 million kl
1,278 billion kWh
(Down 17% from a case
Economic Growth without measures) (Total electricity output) xxx about 1-1.1%
Energy conservation
1.7% year 1,065 billion kWh
about 17% Biomass about
3.7-4.6%
Renewable energy Renewable energy Wind about 1.7%
about 19-20% about 22-24% solar photovoltaics
about 7%
Nuclear Nuclear Hydro
about 17-18% about 20-22% about 8.8-9.9%
Electricity 966.6 Electricity about
billion kWh 980.8 LNG LNG
billion kWh about 22% about 27%

Coal Coal
about 22% about 26%

Oil about 2% Oil about 2%

FY2013 FY2030 FY2030
(Actual)

Source: METI “Long-term Energy Supply/Demand Outlook” (July 16, 2015)

http://www.meti.go.jp/english/press/2015/pdf/0716_01a.pdf

9
Figure 5: Impact of restart of nuclear reactors on the Japanese economy

(IEEJ estimate) FY2010 FY2016 Reference Scenario

Low Case Reference High Case Highest The first commercial operation
Scenario Case
resumes in late summer or early fall
Cumulative number of (FY2015) - [2] [5] [8] -
2015. Restarts of three to five plans
Restarted nuclear reactors FY2016 - 3 13 17 24 follow in every about six months.
Average period for operation {months} - 8 6 10 -
Electricity generation by nuclear {TWh} 288.2 15.3 63.9 132.7 165.9 Low Case
FY2010 FY2016 (Changes from FY 2010) The first restarts delay a bit compared
Low Case Reference High Case Highest with the Reference Scenario. The
Scenario Case
second group restarts about one
Power generation cost (JPY/kWh) {8.2} +3.3 +2.7 +2.0 +1.6
year later.
Total fossil fuel imports (JPY trillion) 18.1 +3.1 +2.6 +1.9 +1.6
Oil 12.3 +1.2 +1.0 +0.8 +0.7
High Case
LNG 3.5 +2.0 +1.7 +1.2 +1.0
The first commercial operation
Trade balance {JPY trillion} 5.3 -9.2 -8.7 -8.1 -7.9
resumes in late summer or early fall
Real GDP {JPY2005 trillion} 512.7 +32.1 +32.3 +32.7 +32.9
2015. Then one plant restarts about
Gross national income {JPY trillion} 493.8 +46.3 +46.7 +47.3 +47.5
a month on average thanks to more
Primary energy supply efficient assessment.
Oil (GL) 232.3 -23.7 -26.7 -30.7 -32.6
Natural gas (Mt of LNG equivalent) 73.3 +17.2 +12.0 +4.6 +0.9 Highest Case
LNG imports (Mt) 70.6 +17.9 +12.7 +5.3 +1.6
A hypothetical case in which 24
Self sufficiency rate 18.0% -8.5p -6.4p -3.4p -2.0p applicant plants for the assessment
Energy related Co2 emissions (Mt) 1,139 +33 +10 -22 -37 generate electricity with 80 per cent
Changes from FY2013 {-7.8%} {-5.1%} {-6.9%} {-9.5%} {-10.8%} of capacity factor.

Economy Energy Enhancement

1. 39 reactors operated at the end of 2010.

2. Power generation cost in FY2010 is for the general electric utilities, estimated based on their profit-and-loss statements.
Source: IEEJ, Economic and Energy Outlook of Japan through FY2016, at the 420th Forum on Research Work, July 2015,
http://www.meti.go.jp/english/press/2015/pdf/0716_01a.pdf

Our view is that Japan is likely to succeed in its energy efficiency targets as it continues to lead
the way in this area. The growth in renewables is aggressive, more than doubling to 23 per cent of
the electricity mix. The reference scenario for nuclear restarting is also aggressive with 13 restarts
in 2016. The low case for the start-up of nuclear is probably more likely. We believe Japan’s LNG
demand will decline, but is unlikely to be as steep as 84 bcm by 2030.18

10
South Korea

In 2014, South Korea consumed 38 mt of LNG, lower

than the initial forecasts from the beginning of 2014.
In 2015, South Korea's LNG demand continued to
decline and now looks unlikely to grow before 2030.19

11
South Korea currently imports 97 per
cent of its energy resources, therefore,
it has been considerably exposed to
both oil and LNG price volatility. 20
Consequently, the South Korean
government has placed a lot of effort
and resources into energy planning to
reduce dependency on imported oil and
gas. During the high oil price period
from 2009 to 2013, South Korea suffered
from high energy costs and electricity
shortages. During this period, the
demand for LNG increased significantly
due to the shortage of electricity.
However, since 2014, the market
situation has changed again and South
Korea has enjoyed the benefits of lower
oil prices and sufficient electricity supply.
In 2014, South Korea imported 38 mt
LNG and was the second largest importer
of LNG globally. The South Korean
Energy and Economics Institute (KEEI)
estimates that after strong natural gas
consumption growth each year following
2009, natural gas consumption fell by
10 per cent in 2014. 21
Figure 6: Power Generation: South Korea Installed Capacity (GW) 2014-2029
2014
2020
2025
2029
0 50
Nuclear Coal Oil Natural Gas
Source: South Korea 7th master plan for the supply and demand of electricity power. The monthly report on
major electric power statistics 2014.12, No.434
12
In 2015, natural gas demand fell more
than expected in South Korea. Use of
natural gas in generation decreased
in the first half of the year due to
increasing use of nuclear or coal for
generation. The usage of natural gas
for industrial use also decreased, while
for commercial and residential use it
decreased slightly (by about 0.4 per
cent). Across all sectors, South Korea’s
use of LNG is expected to decline as
part of total natural gas consumption.
This change in the outlook for natural
gas demand is reflected in South Korea’s
current National Gas Demand and Supply
Plan, which was released in December
2015. The South Korean government now
expects its total natural gas demand to fall
by 5% over the next 15 years.22 This will
be offset by some residential and industrial
gas demand growth but will not offset the
decline expected in gas demand for power
generation (LNG accounted for just over 21
percent of South Korea’s power generation
in 2014).23 South Korea's Ministry of Trade,
Industry and Energy's (Motie) 12th long-
100 150 200
Installed Capacity (GW)
Hydro Renewables
term gas demand forecast shows South
Korean natural gas consumption declining
to 35 mt in 2029.22 According to Motie,
South Korea’s natural gas imports fell
more than nine percent to below 30 million
tonnes in the first 11 months of 2015, with
November gas imports down 34 per cent
on the same period in 2014. Motie said in
July that gas-based power generation is
too costly compared with nuclear power,
which reduces greenhouse gas emissions
more efficiently than thermal fuels.24
As illustrated in Figure 7, the primary
challenge for natural gas in the South
Korea energy market is the cost compared
to other alternatives.
The generation cost of nuclear in South
Korea has increased slightly due to safety
issues. The generation cost of coal and
diesel has decreased significantly due to
low oil price. The spot prices of LNG in
South Korea have decreased, however,
not as much as coal and diesel, while
the cost of solar has been continuously
decreasing for the last five years.
Others
Structural changes in South Korea’s South Korea will be dependent on LNG
economy and energy mix have resulted in imports for its natural gas demand
a sharp decline in demand for natural gas. as neither pipeline gas from Russia
The share of nuclear, coal and renewables or domestic production are currently
in power generation have increased economic options.26
with nuclear and coal continuing to
dominate base-load generation. There
is also currently new nuclear and coal
capacity under construction. Additionally,
renewables are making steady progress.
South Korea added almost one GW
capacity of renewables in 2013 and
again in 2014.25 New natural gas power
plants also came online between 2009
to 2013, but utilization has so far been
low. Therefore, no new power plants
running on natural gas are expected
to be built in the near future.

Figure 7: Generation costs by fuel type

4 17 5 12 11
cents/kwh cents/kwh cents/kwh cents/kwh cents/kwh

Nuclear Power Solar Power Coal Power Wind Power LNG Power

Source: Accenture Research

Our view is that South Korea’s LNG demand will stay flat or slightly decline. The new nuclear and
coal plants coming onstream, the increased emphasis on renewables, and the reduction in industrial
activity as a result of both the low-oil price and slow- down in China has reduced demand at least
in the short-term.

13
China

China remains the highest growth market globally for

natural gas but not necessarily for LNG. In 2014, China
imported 20 mt (27 bcm) of LNG. In 2014, natural gas
demand was 5.5 per cent of primary energy mix (148
mt or ~200 bcm), ~70 per cent domestic, 16 per cent
pipeline imports, 14 per cent LNG imports. Natural gas
demand is expected to grow to ~eight per cent (222 mt
or ~300 bcm) by 2020. However, the current plan is for
a significant portion of this to be produced domestically,
from conventional and unconventional sources, and to
be transported via pipelines.

14
The State Development and Reform
Commission’s energy strategy, which was
revealed towards the end of 2014, has four
guidelines leading up to 2020, which are to:
• reduce overall energy consumption
by improving energy efficiency
• focus on domestic energy exploration and
development to ensure energy security
• encourage low-carbon energy
consumption
• leverage technological innovation.
China’s primary energy demand is
estimated at ~35,000 TWh in 2015 and
is expected to grow at a steady 1.76
per cent CAGR per year to ~39,000
TWh to 2020. This is significantly less
than the 5.65 per cent CAGR per year
for energy demand from 2010-2015.
China’s primary energy mix in 2014
was: coal 66 per cent (2.8 billion tons
of standard coal/1,968 million tons of
oil equivalent (mtoe)), oil 17.1 per cent
(0.7 billion tons of standard coal/511.7
mtoe), natural gas 5.5 per cent (0.2
billion tons of standard coal/165.2 mtoe)
and hydro, nuclear, wind and other
renewables 11.3 per cent (0.5 billion
tons of standard coal/338.8 mtoe).
As indicated in the Communist Party’s
12th five-year plan, coal and renewables
are expected to continue to dominate
power generation with some natural
gas. Natural gas use will be driven
by industry and transportation.
Natural gas demand in China has grown
substantially since the beginning of the
century. The 12th five-year plan forecasts
natural gas consumption as a percentage
of the overall energy mix will increase
to more than 10 per cent by 2020 (266
mt or ~360 bcm). The plan aims greater
use in cities and for transportation and,
to a lesser extent, for power generation
to replace coal. However, natural gas
was only 5.5 per cent of the overall
energy mix at the end of 2014.
The Chinese government is also strongly
encouraging the development of renewable
energy, investing $83 billion in 2014
to diversify the energy mix and meet
increasingly stringent environmental
standards (particularly for air pollution).
China exceeded its target for non-
Figure 8: China Energy Mix Consumption 2014
2014
0 500 1000 1500 2000 2500 3000
mtoe
Coal Oil Natural Gas Nuclear, Hydro, Wind, other renewables
Source: National Bureau of Statistics of China, Statistical Communiqué of the People’s Republic of China on
the 2014 National Economic and Social Development http://www.stats.gov.cn/english/PressRelease/201502/
t20150228_687439.html http://www.nea.gov.cn/2015-01/16/c_133923477.htm
hydrocarbon energy generation in 2015, The main risks to the natural gas supply
with renewables and nuclear generation estimates above are in two main areas:
targets set at 11.4 per cent share; 40gW the 30 bcm shale gas (half of the 60
nuclear generating capacity; 100gW wind bcm unconventional target with the
generating capacity; and 21gW solar balance coal seam gas production)
capacity. The latest estimates from the and the 105 bcm of imported pipeline
China Electricity Council (CEC) show 25 gas. The potential for shale gas to meet
per cent of electricity was generated from the 30 bcm target relies heavily on the
non-fossil energy sources in 2014.27 continued success of the Fuling shale gas
and developing more basins. Sinopec’s 2015
China remains the highest growth market
Fuling capacity will be five bcm, well ahead
globally for natural gas but not necessarily
of 2015 target. The Ministry of Land and
for LNG. China imported 20 mt (27 bcm)
Resources verified proven reserves of over
of LNG28 in 2014 and natural gas demand
380 bcm in the Fuling shale gas field in
was 5.5 per cent (0.2 billion ton standard
Chongqing municipality. Production rates
coal/165.2 mtoe/148 mt/~200 bcm)29,
of 60,000-200,000 cubic metres per day
70 per cent domestic production, 16 per
per well are comparable to Marcellus wells
cent pipeline imports, 14 per cent LNG
in the US. Sinopec’s production in Fuling
imports (20 mt/27 bcm).30 Natural gas is
could be 10 bcm by the end of 2017 and
expected to grow to ~eight per cent share
15 bcm by 2020. However, this would still
(222 mt/300 bcm) by 2020, two per cent
be only 50 per cent of the 30 bcm target.
less than the initial 10 per cent target
(266 mt/360 bcm) in the 12th five-year The construction of the Siberian pipeline
plan. However, the current plan is for a (38 bcm) will also have a significant
significant portion (137 mt/185 bcm) of this impact on how much LNG is imported.
natural gas to be domestically produced, If all of the pipelines under construction
conventional (125 bcm) and unconventional in China through to 2018 are fully
(60 bcm). Significant import pipeline gas operational by 2020, LNG imports for
capacity is also being constructed (105 the 2020 natural gas demand target of
bcm) which will pose significant competition eight per cent, or 300 bcm, may remain
with LNG for the remaining demand.31 at 2014 volumes or less, depending on
domestic natural gas production.
Figure 9: China Natural Gas Supply by Source 2014 and 2020 (mt)
2014 95.7 23.0 20.0 2.6 1.0 142.3
2020 91.9 49.3 27.9 22.1 22.1 221
7.4
Domestic Conventional Asia Import Pipeline LNG
Russia Import Pipeline Domestic Shale Gas Domestic Coal Bed Methane
Source: BP Statistical Review 2015 (2014 domestic production), Platts (2014 Shale and CBM Production),
http://gas.in-en.com/html/gas-2276156.shtml for 300 bcm supply target, NDRC Targets
15
 Pipeline Capacity (bcm/year) Imports (bcm/year) Production Year
Central Asia – Line A/B 30 28.3 2011
China – Burma Pipeline (Sino-Myanmar) 12 3 2013
Central Asia – Line C 25 Beg. Prod. 2014
Russia – East Line (“Power of Siberia”) 38 Under Construct – Delayed 2018
Central Asia – Line D 30 Under Construct 2020
Russia – West Line (“Power of Siberia-2”) 30 N/A TBA

Source: http://gas.in-en.com/html/gas-2302359.shtml

Finally, there is the fact that Chinese
GDP growth is slowing, impacting energy
demand and imports of natural gas.
Given recent trends, even China's
2020 300 bcm consumption target is
aggressive. In 2015 natural gas demand
has grown just five per cent, significantly
lower than the eight per cent CAGR
needed to reach 222 mt (300 bcm) by
2020. Additionally, the government’s
energy demand growth estimates are
just 1.76 per cent per year through 2020.
Much below the 6.25 per cent CAGR
seen from 2010-2015, when natural gas
demand growth was in the double digits.
One key area of natural gas demand
growth is transportation. China leads
the world in the number of natural
gas vehicles, particularly medium
and heavy duty trucks, but even this
sector is experiencing slower growth
than recent years. Nevertheless,
natural gas vehicle growth in China is
still faster than anywhere else in the
world, with 1.6 million vehicles and
250,000 trucks expected to be on
the road at the end of 2015. Falling
diesel prices are, however, making
natural gas prices less competitive.32

Figure 10: China – Natural Gas Demand Growth Projections (mt)

500

Forecast
400

300

200

100

0
2010 2011 2012 2013 2014 2016 f 2018 f 2020 f 2022 f 2024 f 2026 f 2028 f 2030 f
Historical Accenture Worst Case Forecast (3% CAGR) Domestic production forecasts
MLR Target by 2030 (7% CAGR) 12th 5 Year Plan Target 2020 (12% CAGR)
Domestic production IEA WEO 2014 - Current Policies (4% CAGR)

Source: BP Statistical Review for History, 12th five Year Plan for 2020, MLR Targets from 2014 in 2030, MLR Production Targets, IEA World Energy Outlook

Accenture's view is that China’s LNG demand will be lower than initially estimated. It could be
well after 2020 when China’s natural gas demand increases to 300 bcm (50 per cent increase
relative to 2014). On the supply side, there is a real risk that it will take much longer to reach the
unconventionals target and to build the Siberian pipeline.

16
Demand in the three largest markets for LNG, Japan,
South Korea, and China, will be less than originally
forecast as recently as last year.

17
India's demand forecasts are optimistic

India could be the largest and fastest growing market

for LNG. India imported 19 bcm of LNG in 2014, but the
government forecasts demand will almost triple by 2020,
growing to more than 52 bcm, and a significant increase
in natural gas supply from LNG and non-LNG sources to
146 bcm in 2020 from 51 bcm in 2014. However, natural
gas use has been declining over the past four years.33

18
Figure 11: India Natural Gas Use by Sector (mt) 2011-2014, 2020 and 2030 Forecasts

2011

2012

2013

2014

2020
Government
Forecasts

2030

0 10 20 30 40 50 60 70 80 90 100 110 120 130

Power Generation Industrial Fuel Domestic Fuel Captive Use Fertilizer Petrochemical Other

Source: India Energy Statistics 2015, Platts Article on Ministry Forecasts

India is the fourth-largest importer of at the same time for its use to grow as The Indian government has also
LNG, taking 20 bcm of LNG in 2014, but forecast. While there is no doubt India’s introduced a policy for converting all
the government forecasts demand to LNG imports will grow, it is unlikely the naphtha based fertilizer plants to natural
almost triple by 2020, growing to more rate of growth will be sufficient for all gas, and announced plans to connect a
than 52 bcm. Nevertheless, despite projects to go ahead. However, even large number of households to natural
government forecasts to 2020 showing a if only the FSRUs were built and there gas and to use natural gas in 100 smart
significant increase in natural gas supply was no LNG regasification or pipeline cities. Renewable energy sources are
to 146 bcm from 51 bcm in 201434, import capacity, India’s gas import also part of India’s energy policy but will
natural gas use has been declining over capacity would still more than double, likely take much longer to scale, with
the past four years. This is largely due to adding 26 bcm (18.5 mt) by 2020. natural gas a key part of its strategy to
India's delay in expanding its natural gas improve its environmental footprint.
infrastructure and the cost of natural gas
relative to other options. LNG is still too
expensive for power generation, with coal
Figure 12: Primary Energy Mix 2014 (Petajoules)
the preferred economic option. Coal’s
2010-11 21,892 9,207 8,248 1,974 41,321
share of power generation increased to 67
per cent in 2014 from 51 per cent in 2010.
2011-12 22,383 9,325 8,547 1,790 42,045
The Indian government supports LNG
growth, with almost 60 mmtpa capacity
of LNG regasification and floating storage 2012-13 23,903 9,909 9,178 1,532 44,522
regasification unit projects (FSRUs) and
three or four pipeline projects planned
for 2018-20 (see following tables). 2013-14 24,071 9,939 9,316 1,334 44,660
These projects would expand India’s
LNG total import volumes to nearly five Electricity (Nuclear, hydro & thermal) Coal & Lignite
times what they were in 2014. However, Crude Petroleum Natural Gas
infrastructure to transport the gas
across India would have to be developed Source: Energy Statistics 2015

19
Figure 13: India - Planned LNG Regasification and Floating Storage and Regasification Import Projects

S No Project/Contract State/Region LNG Regas/FSRU Capacity Start Year Investment

Name (MMTPA) Size (Rs. Cr.)
1 Ennore Tamil Nadu LNG Regasification 5 2019 5150
2 Mundra Gujarat LNG Regasification 5 2017 4500
3 Kakinada Andhra Pradesh FSRU 3.5 2018 3600
4 Gangavaram Andhra Pradesh LNG Regasification 5 2018 4500
5 Pipavav Gujarat FSRU 5 2018 5500
6 Haldia West Bengal FSRU 4 2019 3000
7 Mumbai Port Trust Maharashtra FSRU 5 2020 4000
8 Digha West Bengal FSRU 6 2019 5100
9 Jaigarh Maharashtra LNG Regasification 8 2018 -
10 Chhara Gujarat LNG Regasification 5 2018 5000
11 Mangalore Karnataka LNG Regasification 2 2018 4500
12 Dhamra Orissa LNG Regasification 5 - 5000
58.5

Source: GAIL

Figure 14: India Pipeline Import Projects35

S No Project/ Description Status Capacity Start Year Investment

Contract Name (MMTPA) Size
1 TAPI Turkmenistan gas via Construction planned 33 2018 US$10 Billion
Afghanistan and Pakistan to begin Dec 2015 (14 for India)
2 IPI Extension of Iranian pipeline Pre-Construction - - US$7 Billion
from Pakistan into India
3 SAGE – MEIDP Iranian gas piped via deep Pre-Construction 11.2 2018/19 US$4.5 Billion
water pipeline to India.
Pipeline to be built by
South Asia Gas Enterprises
4 TII Turkmenistan and Iranian Early Discussions - - -
gas via sea to India

Source: Economic Times of India, The Diplomat, Technology Review

Accenture's view is that LNG demand in India will grow (and India has the potential to be one of
the highest growth markets for LNG) but is unlikely to be as high as government forecasts and is
dependent on the cost competitiveness of LNG.

20
LNG: More markets, more customers

There are now more than 32 countries with LNG

receiving capacity and growing. The lower cost and
higher availability of LNG is creating opportunities for
LNG in markets that are looking to diversify their natural
gas sources and to switch from coal or fuel oil to natural
gas generation. However, many of these markets require
infrastructure development and investment to develop.

21
As LNG demand in the largest markets
declines, there are opportunities in other
markets. The excess supply of LNG could
be absorbed by other markets in Western
Europe, the Baltics, the Middle East, Asia
and Latin America. There are now over 32
countries with LNG receiving capacity.36
Some of the most interesting markets
are described below.
Europe
Although demand in Europe has been
declining, demand in Europe significantly
exceeds domestic supply, and there is
already the infrastructure in many European
markets to import LNG. In addition, there
is an overall desire to diversify natural gas
sources to reduce dependency on pipeline
gas from Russia. Finally, the relatively high
coal use in power generation is resulting
in higher than desired CO2 emissions.
Russia is the biggest supplier of natural
gas to Europe, and the European
Commission is attempting to diversify
energy sources across many EU
countries, with the aim of increasing
energy security and ensuring each
member state has access to a minimum
of three different energy sources.
In recent years, the low cost of coal and
big push for renewables has squeezed
out some natural gas demand in Europe.
However, Europe’s CO2 emissions have
not declined, as forecast, largely because
of Europe’s coal consumption. The most
cost effective way for Europe to reduce its
CO2 emissions is to swap its current coal
use for natural gas as existing natural gas
capacity is significantly underutilized.
Total LNG import capacity in Spain, UK,
France, Italy, Netherlands, Belgium, and
Portugal is over 131 MMTPA (~180 BCM)
with more capacity under construction.37
Although Spain and Portugal may be
difficult markets for new LNG supply given
their current long-term over-contracted
positions, we expect to see increasing gas
on gas competition, Russian pipeline gas
vs. US LNG, and coal on gas competition
in the rest of Western Europe. The existing
22
hubs with LNG import capacity, such as In addition, Poland’s LNG terminal
the Dutch TTF, British NBP and Belgium’s will be commissioned in Q2 2016.40
Zeebrugge are obvious markets for excess There are already plans to expand
LNG. At competitive LNG prices, LNG should the LNG terminal in Swinoujscie, with
be displacing higher CO2 emitting coal the government investing in a second
and take some market share from Russian gas port. Officials have stated that in
pipeline gas. For example, on October four to six years Poland will be fully
28th, French company Engie had signed prepared to become independent from
a five-year deal with Cheniere Marketing natural gas supplies from Russia.41
International LLP. As a result of that deal,
Other European markets with current
Engie will purchase 12 cargoes of liquefied
plans to import LNG include Finland,
natural gas each year.38 Last July, French
Utility company EDF closed a similar Ireland, Croatia and Greece.
agreement with Cheniere. EDF (85 per cent)
will buy and provide to its customers an Middle East
average of 770,000 tons of LNG every
Although the Middle East, as a region,
year for 20 years starting in 2019.39 Today,
is a significant exporter of natural gas,
for Western Europe, growth of LNG is
there are many markets where natural
dependent on displacement – primarily
gas demand is increasing and where
displacement of lower cost Russian pipeline
oil is still used for power generation
gas and displacement of lower cost coal.
and other applications better suited to
In some of the Baltic countries, where natural gas. Established and growing
the infrastructure is just being developed, LNG markets in the Middle East include
the opportunities could be bigger given Kuwait, the UAE and Oman. In 2015,
the strong desire to diversify away from shipping data suggest that Kuwait’s
Russian gas. A significant story in 2015 imports increased by nearly 13 per cent
was Lithuania’s importing of LNG. The year-to-year in January-September.42
appropriately named FSRU ‘Independence’ Dubai’s imports rose by 62 per cent.43
terminal has changed Lithuania’s natural 2015 also saw the arrival of Jordan and
gas supply options and more significantly, Egypt as LNG importers. Jordan has also
has changed the country’s economic and started to export to Egypt via pipeline.
political situation. Lietuvos Energija CEO
Egypt used to be an LNG exporter, but it
Dalius Misiunas said the decision to build
is suffering major gas shortages, forcing
an LNG import facility had fundamentally
the government to divert gas meant for
changed market dynamics in Lithuania
export via LNG to the domestic market.
and the wider Baltic region. Lithuania
Longer-term, Egypt will develop the
and its neighbours previously were
Zohr gas field, but in the short-term, it
totally dependent on Russian gas supplies
remains heavily reliant on LNG to meet
with LNG now giving Lithuania more
its natural gas demand. LNG is a key
security of supply and access to a more
opportunity for many countries in the
competitive gas market. By introducing
competition, Lithuania has been able Middle East where electricity demand is
to achieve a significant discount on its growing and oil that could be exported
Russian imports. LNG represented around is being used for power generation.
25 per cent of Lithuania’s total gas
consumption in 2015 (2.0-2.1 bcm) with
Russia still supplying 75 per cent of its
gas. Lithuania’s LNG import capacity is
significantly higher than domestic natural
gas demand and it has already exported
natural gas to Estonia. Lithuania could
expand this activity to Latvia and even
Poland via a planned gas interconnector.
Figure 15: Receiving LNG Terminal Import Capacity and Utilization Rate by Country in 2014 and 2020

North
Africa Asia Asia-Pacific Europe Latin America Middle East America

120%
100
100%

80%
MTPA

60%

50 40%

20%

0 0%
Egypt
Pakistan
Taiwan
Indonesia
Malaysia
Singapore
Thailand
Belgium
France
Greece
Italy
Portugal
Spain
Turkey
UK
Lithuania
Netherlands
Poland
Dom. Rep
Puerto Rico
Argentina
Brazil
Colombia
Chile
Uruguay
Israel
Jordan
Kuwait
UAE
Mexico
Canada
2014 2020 Utilization 2014 (right axis)

Source: IHS, IGU, Company Announcements

Other Asia Latin America users become customers of LNG. There

is potential to grow this market, even
Although LNG demand in Asia’s largest While Latin America, a market for natural in the countries like Japan and South
(northern) markets like South Korea and gas, should remain relatively balanced Korea where LNG demand for generation
Japan is declining, there is a growing with respect to supply and demand is declining. In addition, going forward,
LNG market in other Asian countries. LNG similar to the Middle East, there is a there is also an opportunity to use LNG
imported by Asian buyers overall increased growth opportunity in some markets. for marine and heavy duty transport.
by 4.2 per cent year on year in November In 2015, demand in Chile was strong These customer bases and additional
2015 to 14.79 million mt, as increasing and, with support from suppliers, like applications of natural gas must be
purchases by South and Southeast Asian Cheniere, who are willing to invest to developed. However, producers and
buyers offset decreased demand from lock in demand, looks set to grow. In the marketers of LNG need to support market
North Asian buyers (notably South Asian short-term Argentina is also a growth and infrastructure development as
buyers in Pakistan and Thailand).44 For market for LNG imports. In 2015, the fall many of these customers will not have
example, in Thailand, natural gas imports in LNG prices has made it a competitive the experience to bring together the
are up more than 68 per cent in 2015. alternative to fuel oil. However, longer- natural gas value chain. An important
Pakistan is also an interesting new market. term, Argentina, like Egypt with its Zohr consideration is how the producers and
Pakistan has had an energy deficit for the gas field, will have new domestic natural marketers of LNG move from a model
last decade or so with its domestic gas gas supply via the Vaca Meurta shale gas. where it’s a partnership or venture
production flat at around at 4.2 Bcf/day with a large customer or transactional
while demand has been surged to 6.2 Bcf/ New customers and trades for spot or short-term LNG to
day in summer and nearly seven bcf/d in service many small customers in many
winter. Pakistan is now importing LNG applications markets. The operating model will need to
from Qatar with Qatargas will supply a Historically, the main customers of evolve to more of a business to business
minimum 1.5 mt of LNG which will be LNG have been the large utilities for or wholesale model, somewhere in
increased to three mt from 2018 (2018- generation. To date, this has been a between the key account management
2030).45 There are already discussions of a concentrated market with few large of a handful of big customers and
second LNG import terminal for Pakistan. customers. Increasingly, we are seeing the transactional nature of spot and
industrial, city gas and other industrial short-term contracts or tenders.

23
Figure 16: LNG Regasification Capacity by Country (MTPA) and Utilization, 2014

200 120%

100%
150
MTPA

80%

100 60%

40%
50
20%

0 0%
Japan
US
South Korea
Spain
China
UK
India
France
Mexico
Taiwan
Brazil
Italy
Turkey
Netherlands
Canada
Argentina
Belgium
Singapore
Portugal
Kuwait
Indonesia
Thailand
Chile
Small Mkts*
Capacity Utilization 2014 (right axis)

Note: “Smaller Markets” includes the Dominican Republic, Greece, Isreal, Lithuania, Malaysia, Puerto Rico and the
UAE. Each of these markets has less than 4 MTPA of capacity. Source: IHS, IGU

24
There are new markets for LNG, but growth in these markers is dependent on lower and more
competitive LNG prices and many of these markets will require midstream infrastructure and
financial support from LNG suppliers to develop. In addition, the contracted volumes of LNG will
be much smaller than the traditional LNG markets and contracts in Japan, South Korea and China.

25
A new perspective on demand in 2030

In looking at current analyst and government projections for LNG demand for Japan, South
Korea, and China, Accenture believes that LNG consumption in these three countries will not
be as high as any existing forecasts. As illustrated in the chart below, the worst case LNG
demand scenario is one where there is a combination of an aggressive nuclear start-up in Japan
combined with successful energy conservation, continued decline in natural gas demand in South
Korea in favour of renewables, nuclear, and coal and successful development of shale gas and
completion of import natural gas pipelines in China combined with slowing economic growth.
The key question is how much can demand in new markets and new applications grow.

India will be a growth market for LNG, but
it’s unlikely that India will grow as much
as currently forecast. Natural gas use
could continue to decline in generation
given the relative cost of coal. India
could even follow China and Germany
and use coal with renewables. Although
significant LNG import and pipeline gas
projects are planned, given the low oil
price, it might only be the FSRU’s planned
before 2020 that are built by 2030.
In the worst case scenario, demand
in these four countries falls from the
published 268 mt (in the China MLR
2014, Japan IEA New Policies Scenario,
S.Korea 2014 Ministry of Energy, Indian
Oil Ministry) to 150 mt. The worst case
assumes that Japan hits its nuclear and
energy efficiency targets in 2030, that
South Korea's demand stays flat, that
China’s natural gas demand slows so that
it reaches 300 bcm closer to 2030 than
2020 while domestic supply and pipeline
gas capacity grows, and that, in India,
only the FSRU’s planned for 2020 are
developed by 2030. In the 2030 demand
increases elsewhere example, the rest of
LNG demand is made up in other markets,
and the share of these four countries falls
from 54 per cent of the global market to
~30 per cent. In the 2030 worst case total
demand falls example, the fall in demand and Russian pipeline projects delayed.
in these four markets reduces the total Imported pipeline gas and imported
LNG market- i.e., the demand is not made LNG will continue to compete for China
up elsewhere and the market size falls from demand. India’s LNG demand could grow
500 mt to 382 mt. more significantly, taking advantage of
the oversupplied market as it is unlikely
However, it is also unlikely that LNG that India will be able to pursue a policy
demand in Japan, S. Korea, and China of coal only, and it has stated that
will be this low. Japan’s nuclear build renewables are a longer-term solution.
out could be slower than expected,
China’s growth rate could be larger and Finally, growth in new markets and
China’s unconventional development applications could be larger than expected.
Figure 17: Possible LNG Demand to 2030: China, Japan, South Korea,
India (mt)
2030 Published
2030 Demand increases
elsewhere
2030 Worst Case-
total demand falls
0 100 200 300 400 500 600
China Japan South Korea India Others
Source: IEEJ Nuclear Estimates, METI Annual Energy Outlook 2015, NDRC Energy Mix and Gas Production
Targets Production Targets to 2020 and MLR Targets to 2030, Platts Coverage of Indian Oil Ministry
Targets http://www.platts.com/latest-news/natural-gas/mumbai/indias-natural-gas-demand-to-double-
to-51697-26778967

LNG’s traditional markets are declining. The future of LNG in an oversupplied world is dependent
on finding new markets and customers.

26
Implications for LNG producers
and marketers
The future for LNG, at least for the next 10 years, looks set to be a buyers’ market which will keep
prices lower than we have seen in the past. Although today, LNG volume is dominated by a few
large countries, the number of countries importing LNG is growing. In 2015, there were 32 countries
importing LNG including new importers such as Lithuania, Jordan, Egypt, and Pakistan.46 LNG Demand
will look very different, with more countries making up demand vs. a few very large demand countries.
LNG producers need to diversify their
portfolio to include Europe and small
countries. They need to invest in science
and engineering to support smaller LNG
shipments that will allow them to widen
their customer base and also technologies
that encourage the use of natural gas
in transport and other applications.
They need to create flexibility in
how they contract and manage their
trading portfolios and to leverage the
midstream to maximise margins.
The following are six key implications
for natural gas producers and marketers:
1. Japan, South Korea,
China and India are still
critical markets
Although a large number of long-term
contracts in Japan and South Korea are
due to expire before 2020, Japan and
South Korea will still have some of the
largest customers. Those with these
contracts need to protect this market
share, and those marketers of LNG who
are looking for an opportunity, buyers
in Japan and South Korea will certainly
be contemplating whether to renew
long-term contracts, how much demand
to leave short-term/spot, and how to
build capability to clear excess supply.
Although China has aggressive plans for
domestic production and pipeline gas,
there is a risk to this supply that could
be mitigated by LNG. Today’s LNG prices
could also make LNG very competitive
to more expensive domestic natural gas
production. Natural gas demand in the
southeast coastline would also logically be
better met with imported LNG, particularly
if the LNG is competitively priced
For India, it is largely about cost
competitiveness. India could grow
significantly if LNG prices become
competitive with coal or, like China, air
quality becomes a top government priority.
In all of these markets, although there is
a renewables agenda combined with coal
use in generation, LNG will be needed
for city gas and other applications and
to provide seasonal, flexible capacity
often required when uneven weather
patterns impacts renewables generation.
2. Diversify to
additional markets and
customer segments
Producers and marketers need to diversify
customer base to other markers where
LNG demand is likely to increase.
• Europe. Although natural gas demand in
Europe has been declining, there remains
a real opportunity for LNG in Europe.
There is a desire to reduce Europe’s
dependence on Russian pipeline gas.
Also, given Europe’s focus on renewables
and emissions, the continued increase in
the use of coal to supplement renewables
and overall coal demand for generation is
unlikely to be sustainable. The most cost
effective way to reduce CO2 emissions
in Europe is to replace coal with natural
gas. It has significant underutilized
natural gas power generation capacity.
• Other countries. The LNG import
market will continue to diversify through
2030 with countries in Asia, the Middle
East, and Latin America emerging as
new importers. For example, in 2015,
Egypt,47 Jordan,48 and Pakistan49 have
all become LNG importers. Demand
from existing small LNG importers is
also expected to grow. In Thailand LNG
imports are still quite small, but are
expected to grow to four mt in 2015
and the government is actively pursuing
other supply options for the future.50
• New customers and applications.
Expand customer base to include new
customer segments and applications (eg.
industrial, city gas, transport, marine).
In addition to the new markets, there is
an opportunity to grow these segments
even in the large markets like Japan and
South Korea where LNG demand for
generation is declining. In addition, going
forward, there is also an opportunity
to use LNG for marine and heavy duty
transport. These customer bases and
additional applications of natural gas
must be developed. However, producers
and marketers of LNG need to support
market and infrastructure development
as many of these customers will not have
the experience to bring together the
natural gas value chain. An important
consideration is how the producers and
marketers of LNG move from a model
where it’s a partnership or venture
with a large customer or transactional
trades for spot or short-term LNG
servicing many smaller customers in
many markets. The operating model will
need to evolve to more of a business to
business or wholesale model, somewhere
27
 in between the key account management
of a handful of big customers and
the transactional nature of spot and
short-term contracts or tenders.
3. Prepare for a very
different competitive
landscape with non-
traditional players exporting
and trading U.S. LNG
As illustrated in the following chart,
there is over 53 MMTPA LNG export
capacity under construction in the US
and another 27.9 MMTPA pre-FID. This is
Figure 18: The US Shale Revolution has driven capital into liquefaction facilities
Change in Rig Count Dec 2014 - Dec 2015
Change in Oil and Natural Gas Production
Dec 2014 - Dec 2015
Proposed LNG Projects Approved
and Under Construction (UC) as of 2015
Niobrara
-71% -8% -5%
Rig Count
Oil Production
Natural Gas Production
Proposed Liquefaction Projects
Above Average Growth
Below Average Growth
Decline
UC = Under Construction (Announce Start Date)
Source: Drilling Info Map | EIA Drilling Productivity Report, Nov 2015 | EIA Crude Oil Production, Sept 2015 | EIA Natural Gas Gross Withdrawals, Sept 2015
IGU World LNG Report 2015 Edition | Cheniere | Accenture Analysis
28
~22 per cent of 241 MMTPA (or almost 4. Build flexibility in
34 per cent including pre-FID capacity)
that was traded in 2014.51 Much of this contract portfolios through
volume is being brought on-stream by trading and midstream
non-traditional players with a large
The spot and short-term market for LNG
trading emphasis, e.g., Cheniere Energy.
was 27 per cent of the global LNG trade
Cheniere Energy has invested in a
significant sales, trading and marketing in 2014.52 In a buyers’ market, there is
arm with staff based in London, Houston, likely to be an increase in optimization
Santiago, and Singapore to deliver LNG and arbitrage opportunities, particularly
as demand becomes more geographically
internationally and already chartered
three LNG vessels for deliveries in 2015 diverse. As many large long-term
and 2016. The LNG volume that will natural gas contracts expire, LNG buyers
may choose to lock-in a much smaller
be available from the U.S., coupled
percentage into long-term contracts.
with the excess supply, will drive a
In addition, there is the question of
bias towards trading as owners of LNG
whether the market will move more
compete for buyers and opportunities.
Top 7 shale gas and tight oil basins as a Percentage of
US Oil and Gas Production as of October 2015
Crude Oil
(9.347 MMbpd)
55% 45%
Natural Gas
49% 51%
(90.866 Bcfd)
Top 7 Basin Production All Other Production
Bakken
Marcellus
-69% -10% 3%
-50% +2% -1%
- Utica
Permian
-66% +52% +54%
-61% +12% +13%
Haynesville
-35% -9% -0.4%
Eagle Ford Dominion - Cove Point
5.25 MTPA UC (2017)
-66% -22% -6% Sempra - Cameron LNG
12 MTPA UC (2018)
10 MTPA Pre-FID
Cheniere - Sabine Pass
Corpus Christi LNG Freeport LNG 9 MTPA US (2015-2016)
9 MTPA US (2018) 4.64 MTPA UC (2018) 13.5 MTPA UC (2016-2018)
4.5 MTPA Pre-FID 9.28 MTPA UC (2019) 4.5 MTPA Pre-FID
quickly than expected from oil-linked
(relatively attractive in this low oil price
environment) to Henry Hub (or other gas
hub) linked contracts. LNG suppliers and
marketers should carefully consider how
much of their capacity should be tied up
versus sold short-term and spot LNG.
LNG buyers should look at secondary
markets and how to sell excess supply to
smaller customers. Careful consideration
of contract portfolios is also critical in
markets where the seasonal peaks in
natural gas demand could be magnified
because baseload generation is dominated
by less flexible coal and renewables.
Commercial optimization of the
midstream becomes more critical as
access to markets, the flexibility to
move product to the highest margin
markets, and the ability to quickly take
advantage of opportunities will be a
key differentiator in a buyers’ market.
5. Invest in science,
technology, and engineering
for small scale LNG and
new applications
Science, technology and engineering have
been responsible for much of the change
in today’s energy system. For example:
• Science and engineering to support
small scale LNG plants, shipments and
applications and to grow the FSRU
market. There have been significant
advancements in driving down the
cost of small scale liquefaction and
regasification, but this is still relatively
expensive. Small scale liquefaction
and regasification will add flexibility
to how LNG can be deployed
• Engineering that supports the growth
of LNG applications in trucking and
marine. The use of both LNG and CNG
in transportation, road and marine is
increasing. Of late, engineering design
in the U.S. for large truck, long haul
CNG has outpaced LNG. Some class
seven-eight CNG trucks can now travel
600 miles without refuelling.53 This
was not even thought to be possible
for CNG three-four years ago, when
the view was that the heavy duty
class seven-eight had to be LNG.
• Technologies that can reduce the
cost of delivered LNG. Big data
and digital has had an impact on
the operational effectiveness and
efficiency of many heavy industries.
LNG is not an exception.
6. Drive down the costs
of delivered LNG
The days of Asian spot LNG prices at
$16-18/MMBTU may be behind us.
Today, LNG cargoes are trading at less
than half this. Projects that have not
passed FID before the price collapse
are unlikely to go forward. We see high
profile projects being cancelled, and many
projects in Australia were justified at
prices that are unlikely to materialize.
However, the LNG project development
costs in many markets, e.g., Australia
and Canada, were much higher than
they should have been. Services costs
in particular were inflated. There
continues to be significant opportunities
to reduce costs in the same way that
we have seen dramatic cost reductions
in onshore U.S. project development.
Accenture will continue to explore
these themes in future papers in
the Gas Grows Up series.

In summary, we expect the next 5-10 years to be a buyers’ market for LNG globally.
This means that producers and marketers need to act now to increase their
competitiveness in a market where the demand outlook is less optimistic than it
was. It will be those LNG producers and marketers who can be cost competitive in
bringing LNG to the market, who can develop new markets and customers, who are
able to optimize their contract and asset portfolios, and who are agile enough to take
advantage of opportunities as they arise who will succeed in the next 5-10 years.

29
References
1. World Energy Council, World Energy Resources 2013
Natural Gas Chapter, pg. 2
2. BP Statistical Review 2015 (LNG Trade = 333 bcm, China
= 27.1 bcm, Japan = 120.6 bcm, S. Korea = 51.1 bcm
3. BP Statistical Review 2015, 1996-2016 BP p.l.c.
4. IEA Sees No Return to EU Consumption Peak, 11
November 2015, Platts European Gas Daily, © 2015
McGraw-Hill, Inc., via Factiva
5. IGU-World LNG Report, 2015 edition, © 2016
International Gas Union
6. “Winners and Losers in the Asian LNG Game”,
3 December 2014, World Gas Intelligence © 2016
Energy Intelligence Group, via Factiva
7. BP Statistical Review 2015, 1996-2016 BP p.l.c
8. IGU LNG 2015 report delivered in 2014
9. BP Statistical Review 2015, 1996-2016 BP p.l.c.
10. “Emissions Reduction through Upgrade of Coal-
Fired Power Plants” International Energy Agency,
May 2014, © OECD/IEA 2014 – https://www.iea.
org/publications/freepublications/publication/
onsReductionthroughUpgradeofCoalFiredPowerPlants.pdf
11. METI “Long-term Energy Supply/Demand Outlook”
(July 16, 2015) http://www.meti.go.jp/english/
press/2015/pdf/0716_01a.pdf
12. IEA World Energy Outlook 2014, Annex A: Japan
Current Policies, pg. 635
13. METI “Long-term Energy Supply/Demand Outlook”
(July 16, 2015) http://www.meti.go.jp/english/
press/2015/pdf/0716_01a.pdf
14. http://www.bg-group.com/480/about-us/lng/global-
lng-market-outlook-2014-15/
15. METI “Long-term Energy Supply/Demand Outlook”
(July 16, 2015) http://www.meti.go.jp/english/
press/2015/pdf/0716_01a.pdf
30
16. METI “Long-term Energy Supply/Demand Outlook”
(July 16, 2015) http://www.meti.go.jp/english/
press/2015/pdf/0716_01a.pdf
17. IEEJ, Economic and Energy Outlook of Japanthrough
FY2016, at The 420th Forum on Research Work, July
2015, http://www.meti.go.jp/english/press/2015/
pdf/0716_01a.pdf
18. IEEJ, Economic and Energy Outlook of Japan through
FY2016, at the 420th Forum on Research Work, July
2015, http://www.meti.go.jp/english/press/2015/
pdf/0716_01a.pdf
19. BP Statistical Review 2015, 1996-2016 BP p.l.c.
20. BP Statistical Review of World Energy 2015,
1996-2016 BP p.l.c.
21. US Energy Information Administration, South Korea
Country Information, October 2015, © 2016 EIA
22. “S.Korea sees gas demand falling 5 percent by 2029”,
Reuters, December 28th 2015 © 2015 Thomson’s
Reuters, via Factiva
23. “S.Korea sees gas demand falling 5 percent by 2029”,
Reuters, December 28th 2015 © 2015 Thomson’s
Reuters, via Factiva
24. S Korea Ministry of Trade, Industry and Energy Export
and Import Trends for November 2015
25. US Energy Information Administration, South Korea
Country Information, October 2015, © 2016 EIA
26. “S.Korea sees gas demand falling 5 percent by 2029”,
Reuters, December 28th 2015 © 2015 Thomson’s
Reuters, via Factiva
27. "They are now the largest wind power market in the
world. They have increased their power generation
from renewables from really nothing 10 years ago –
and now it's 25%. These are very important signals
that China is moving into the right direction." http://
www.bbc.com/news/business-33143176
28. IGU- World LNG Report, 2015 edition, © 2016
International Gas Union)
29. National Bureau of Statistics of China, Total Energy
Consumption 2014
30. BP Statistical Review 2015 (2014 domestic production
31. Platts (2014 Shale and CBM Production), http://gas.in-
en.com/html/gas-2276156.shtml for 300 bcm supply
target, NDRC Targets
32. http://www.ttnews.com/articles/basetemplate.
aspx?storyid=35685&t=China-Turning-to-Natural-Gas-
as-Means-of-Reducing-Greenhouse-Gas-Emissions
33. IEA ,India Energy Outlook Special Report 2015, ©
2015 OECD, IEA – http://www.worldenergyoutlook.
org/media/weowebsite/2015/IndiaEnergyOutlook_
WEO2015.pdf
34. IEA ,India Energy Outlook Special Report 2015, ©
2015 OECD, IEA – http://www.worldenergyoutlook.
org/media/weowebsite/2015/IndiaEnergyOutlook_
WEO2015.pdf
35. • http://timesofindia.indiatimes.com/india/India-
3-other-nations-to-jointly-own-TAPI-pipeline/
articleshow/48382706.cms
• http://thediplomat.com/2015/09/turkmenistan-
pushes-ahead-on-tapi-pipeline/
• http://articles.economictimes.indiatimes.com/2015-
07-28/news/64958422_1_oil-india-indian-oil-
corporation-south-india
• http://economictimes.indiatimes.com/industry/energy/
oil-gas/oman-india-gas-pipeline-a-most-promising-
option/articleshow/45201546.cms
• http://www.orfonline.org/cms/sites/
orfonline/modules/analysis/AnalysisDetail.
html?cmaid=84207&mmacmaid=84208
• http://www.technologyreview.com/news/539701/
with-nuclear-deal-india-looks-to-iran-for-natural-gas/
36. IGU- World LNG Report, 2015 edition, © 2016
International Gas Union)
37. IGU- World LNG Report, 2015 edition, © 2016
International Gas Union)
 Glossary
38. Engie Press Release “ENGIE and Cheniere enter into 47. http://uk.reuters.com/article/2015/08/21/egypt-lng-
an LNG Sales and Purchase Agreement”, October jordan-idUKL5N10W10020150821 Bcm billion cubic meters
2015, http://www.engie.com/en/journalists/
press-releases/engie-cheniere-lng-sales-purchase- 48. http://www.reuters.com/article/2015/10/14/us- Mt million tonne
agreement/ jordan-lng-idUSKCN0S81OA20151014
Kl kiloliter
39. EDF Press Release “Cheniere Signs MOU with EDF 49. https://www.lngworldnews.com/excelerate-
Trading” July 2015 – http://www.edftrading.com/ performs-first-sts-lng-transfer-in-pakistan/
media/press-releases/cheniere-signs-mou-with- twh terawatt hours
edf-trading 50. http://www.platts.com/latest-news/natural-gas/
singapore/thailands-ptt-could-double-lng-imports- gw gigawatt
40. First Qatari LNG shipment to Poland to arrive next to-3-mil-27000087
month, 20 November 2015, Platts Commodity News, kwh kilowatt hours
© 2016 Mcgraw Hill, via Factiva) 51. IGU – World LNG Report, 2015 edition, © 2016
International Gas Union) mmtoe/mtoe million of oil
41. Gov't to Consider Building Second LNG Terminal,
20 November 2015, Polish News Bulletin, © 2010 52. IGU – World LNG Report, 2015 edition, © 2016 equivalent
PNB Company via Factiva) International Gas Union)
CAGR compound annual
42. World: Commodities - EIU's monthly liquefied 53. Accenture research
natural gas outlook, 1 December 2015, Economist
growth rate
Intelligence Unit, (C) 2016 The Economist
Intelligence Unit Ltd., via Factiva Mmtpa/mtpa million tonnes per
annum
43. World: Commodities - EIU's monthly liquefied
natural gas outlook, 1 December 2015, Economist
Intelligence Unit – (C) 2016 The Economist
FSRUs floating storage and
Intelligence Unit Ltd., via Factiva regasification unit
44. “Asian LNG imports rise in November 2015”, 14 FID final investment
December 2015, Platts International Gas Report,
Issue 788 © 2015 Macgraw Hill, via Factiva decision
45. “Pakistan approves year LNG sales agreement with Mmbtu million British
Qatar”, 13 January 2016, Platts Commodity News,
© 2016 Magraw Hill, via Factiva
thermal units

46. IGU – World LNG Report, 2015 edition, © 2016 Bcfd billion cubic feet
International Gas Union) per day
mmbpd million barrels
per day
UC under construction

31
About Accenture Authors For more information
Accenture is a leading global professional Melissa Stark on Accenture's services
services company, providing a broad Accenture Energy LNG lead
range of services and solutions in melissa.stark@accenture.com
to the Energy industry:
strategy, consulting, digital, technology Visit: Accenture.com/Energy
Melany Vargas
and operations. Combining unmatched
Accenture Strategy Twitter
experience and specialized skills across
@AccentureEnergy
more than 40 industries and all business Accenture Research (London,
functions—underpinned by the world’s China, South Korea, India) Linked In
largest delivery network—Accenture Accenture Energy Showcase
works at the intersection of business
and technology to help clients improve
their performance and create sustainable
value for their stakeholders. With
approximately 373,000 people serving
clients in more than 120 countries,
Accenture drives innovation to improve
the way the world works and lives.
Visit us at www.accenture.com.

Copyright © 2016 Accenture

All rights reserved.

Accenture, its logo, and

High Performance Delivered
are trademarks of Accenture. 15-4687